【TMGM Financial Recap】The Fed's Hawkish Paws Strongly Tear Through The Bullish Defense Of Gold, Gold Prices Hit A New One-Month Low!
On Thursday, spot gold fluctuated slightly higher. Previously, spot gold had risen more than 1% before the Federal Reserve's decision announcement, but quickly fell after the decision, hitting its lowest level since August 7. This sharp drop was the result of Fed rate hikes, a stronger dollar, stubborn inflation, and multiple geopolitical pressures. Gold, as a traditional safe-haven asset, once again exposed the vulnerable side of its non-yield characteristics in a rising interest rate environment.
The Fed raised the federal funds rate target range by 25 basis points to 3.75%-4.00%, marking the first rate hike in three years and the first policy shift since new Chairman Wash took office. The resolution was unanimously approved. At the post-meeting press conference, Wash made it clear that the current focus is mainly on price stability within its mission, emphasizing that inflation is too high and prolonged, and that this summer's data does not show a significant improvement in the underlying trend. He pointed out that the economy has strengthened, domestic consumption is highly resilient, productivity growth is strong, and capital investment is robust—these factors have collectively intensified inflationary pressures.
The market quickly interpreted Walsh's remarks as hawkish signals; his remarks, combined with a hawkish interest rate dot plot, reinforced expectations of continued rate hikes at upcoming meetings, boosting the dollar and putting short-term pressure on metal prices. The rising cost for overseas buyers to purchase gold further weighed on gold prices. Although gold has traditionally been seen as an inflation hedge, when interest rates rise, the opportunity cost of holding interest-free gold increases significantly, naturally flowing funds into higher-yield assets.
The Fed's latest economic forecasts show that 16 out of 18 policymakers expect at least another 25 basis point hikes by the end of this year, with policy rates rising to the 4.00%-4.25% range and remaining at that level by the end of 2027. Inflation expectations have been raised to 3.7%, with expectations that the target will not return to 2% until 2029, a year later than previously forecasted. Growth expectations have been slightly raised to 2.3%, while the unemployment rate is projected to fall to 4.1%. These figures together paint a picture of stubborn inflation and resilient economic resilience, causing the market to completely abandon the illusion that a single rate hike would end the cycle.
The background to this rate hike is the combined effect of a series of policies and geopolitical events following the Trump administration's inauguration. Global import tariffs, the energy shock triggered by the US-Israel coalition war against Iran, and the massive capital expenditures driven by the AI boom have collectively driven up prices.
Market Insight:
This Fed rate hike marks the start of a new tightening cycle. In the short term, if subsequent economic data continue to show stubborn inflation and strong economic resilience, the market may price in further rate hikes more aggressively, and gold prices still face downside risks. If the Middle East situation eases and oil prices fall, easing inflation concerns, it could provide gold with a rebound opportunity.
